1st I don't see how the merger made sense for EADS and BAE - for BAE yes, but not for EADS. At least not with the planned 60/40 split - should have been more like 80/20, considering the, pension liabilities, order books and so on. In the end, this 'merger' would have resulted in desaster, comparable to the epic fail of Alcatel-Lucent.

2nd, pray tell, why didn't the brits and french agree to Merkels demand that the HQ of the group should be allocated in Germany? Their refusal to accept this was the true deal breaker. After all, France would have kept the civil HQ and the UK the military HQ.

The germans would have been left with nothing in terms of jobs and power. Just a few shares. Would this have been in the best interest of the Geman electorate she is sworn to?

Certainly not. So Merkel was completely right to kill this stupid 'merger'.

It appears you got a bit excited about the nobel peace prize for the EU. Did you think that the rest of the world is like brainwashed sheep which blindly falls for all the lies spewed by EU's political and media elites?

"Comedy, of course, depends on timing, and the timing of this award couldn't be more piquant

As soon as news of the award broke, Twitter convulsed with merriment.

That assessment overlooks the E.U.’s minimal role in resolving the hostilities that the process of reconciliation is meant to address. It failed to prevent war in Bosnia, the region’s one major conflict since the E.U. was founded, could not stop that war and had little impact on its outcome."

Ofcourse to add top my previous jibe on the British Government I should turn things round a bit. Why on Earth did the French and Germans ( or do I mean Europeans? ) not see this as a God sent opportunity to get the Brits back into the fold ( organically so to speak ...) or are they all so utterly parochial as the whole Euro "debacle" so clearly shows?

The collapse of the proposed merger between BAE Systems and EADS will shift the focus now to smaller deals among global weapons as defence companies strive to keep revenue streams rising in the face of cuts to military defence budgets in America and Europe.

Analysts do not foresee mega-deals of this sort on the horizon for now – the proposed contract between Britain, France and Germany on the BAE-EADS deal was said to be worth around $45 billion. The failure shows how easily a deal of that scale can be derailed by the competing interests of different countries, despite the commercial sense it would have made.

Major defence companies will likely focus on partnering with smaller players such as Rockwell Collins, L-3 Communications Holdings Inc, SAIC Inc or ITT Exelis and Harris Corporation. American companies don’t seem that eager to grow in defence – perhaps in an attempt to secure their base – while many overseas companies have been chastened in watching the BAE-EADS deal falter.

The scope of consolidation in the defence industry largely hinges on how Congress deals with the $1.2 billion in mandatory budget cuts to start in 2013. Half of those cuts are for defence and, given that, one would have to assume that mergers and acquisitions will remain slow if not a low political priority.

Worldwide aerospace and defence deals total just $5 billion so far in 2012, compared with $27.5 billion in 2011.

The collaborative effort by BAE and EADS to create the world’s biggest aerospace and defence group underscores the effect of shrinking markets on big weapons makers. Other major companies are scrambling to move into adjacent civilian or commercial markets or in finding smaller takeover targets to keep revenues growing. BAE’s American unit is looking for possible mergers in the areas of cyber, intelligence, security, and within the electronics and international side of businesses.

The U.S. Department of Defence has discouraged mergers among its prime contractors, but has stated it is fully anticipating takeover consortiums among second- and third-tier suppliers, given the expected decline in defence spending in the coming years.

With all of the talk about 'normalizing' EADS' governance structure- if the takeover of BAE by EADS had gone ahead- so that the new company's board did not continue to have France and Germany's governments' representatives and proxies on it... what is missing from the discussion/reporting in the main stream media is an acknowledgment of EADS's functioning very well- for many years- with its current model of governance...

FRANCE & GERMANY CONTROLLED EADS is extremely highly regarded world wide, very profitable and has no shortage of fully-funded projects in the company's saleable aircraft and related products pipelines... projects that most analysts believe will lead to substantial sales and revenue generation for decades to come...

Largely due to the imminent substantial decline in defence spending among its major customers (US, UK, etc), BAE's future defence-related revenue prospects are poor...

Considering the above- and the reliably large annual taxes EADS directly and indirectly contributes to France & Germany's coffers, why would French and German politicians and bureaucrats want EADS' governance model to be changed from its current, plainly effective model??

Actually,I don't understand why the British government want to intervene the merge.Are they really afraid losing the control of its military industry?As we know,BAE is the world's second largest military corporation ,just next to Lockheed Martin.So if the merge is successful,the new company will be the largest defensive company in the world,which will definitely affect the America's interests. The British government is just a follower of the Americans,which means it must consider the interest of USA government.UK don't belong the Europe in a way.Its central interests always have deep relation with the USA.
As a conclusion , it is no wonder that this merge failed.The main reason is the conflict of interests between USA and Europe.

Yes, we don't want Europe to have advanced weapons, so that they won't be able to fight us when we invade them. That is the real reason why the merger failed. We are grateful for your perspicacious insight and explanation ... Is there anything else you wish to share with us?...

You don't have to worry on that. Europeans are now falling behind even the Russian and Indian in producing 5th generation stealth planes. Unless US prices the F-35 exports more moderately, Europe especially the hard-up PIGS may have to turn to other cheaper suppliers.

"As it is UK and France defense budgets allow them to be present on a number of extra-European theaters."

You are of course referring to the Balkans? Libya?

Got the Americans to do the dirty work to solve European problems and now you portray Europeans as the victims? LOL

As soon as Tripoli fell, Sarkozy rushed to libya to secure his oil contracts.

Lets not even get into the Balkans in the 1990's when Europeans shirked their responsiblities while a tin pot dictator from tiny Serbia went crazy with ethnic cleansing and genocide-Sebrenica on European soil.

Tell us again how morally superior Europeans are because even though they did nothing while men, women and children were slaughtered right under their noses in mass graves on European soil in the killing fields of the Balkans, they are morally superior to Americans because they don't have the death penalty for henious crimes like murder.

It was reported that Zionist Sarkozy got his re-election dole from Gaddafi. But in the interests of the Oil sisters, he had acted to support the Salafists who have shown their true color by finishing off a few American neocons in Benghazi & now, Yemen. Unless the philandering dude wants to enjoy the 72 more virgins in paradise, he will make himself scarce in those places even though he may be thinking of peddling more arms sales to the Wahabbis.

Isn't it you who has rewritten history by whitewashing the fact that Europeans did nothing while men, women & children were slaughtered right under their noses in mass graves on European soil in the killing field of the Balkans in the 1990's.

Isn't it you who has rewritten history by whitewashing the fact it was American power which finally put an end to that slaughter with the Dayton accords which still holds the peace in the Balkans today.

And you think the Europeans who produced fascism and nazism, not to mention the Hitlers & Mussolinis are morally superior?

Simply hilarious. You must need a lot of rewriting of history to come to this conclusion.

BTW, the rest of the world has noticed that Europe cannot go for a few decades without producing homegrown genocidal tyrants.

The last homegrown genocidal tyrant popped up in the Balkans barely 2 decades ago.

Can you let us know in advance when the next genocidal European tyrant will pop up?

Sure looks like it could be in Hungary or Romania with all the hatred directed at the Roma. Oh my goodness, attacks on Roma, Roma houses burnt. Sure looks like another Kristallnacht is in the works.

I'm disappointed of the prestigious magazine "THE ECONOMIST" The article is written from a narrow British perspective.

Why should France and Germany allow that their defense HQ moves to the UK? Imagine the British defense HQ moves too Berlin or Paris.. How would the government react? Plus a deal of 60/40?
Please.. EADS is financially and strategically way more powerful than BAE.

Germany did again very well! One of the reasons why it is the by far the strongest economy in Europe!

This deal would benefit all three countries and give Europe a backbone for defence. EADS will not survive as a defence company except for specialist items now as this merger was its only real hope of doing so. If the government continues to say 'nein' to sensible market moves the company wants to do then eventually it will cease to be profitable. Even the French recognised this!

"This deal would benefit all three countries and give Europe a backbone for defence"

What can you mean by "Europe"?
Surely you cannot a political entity, like the one those unpopular bunglers of the dictatorship in Brussels are trying to foist on the continent in such a spectularly counterproductive manner?

Sure, their "EU" would have liked to have had an armaments conglomerate to give it "backbone" and an army even in order to pretend that it has created a nation, but who would sign up to it, where would it find willing conscripts?

Deary me, you have got your knickers in a twist over this thing. The proposed idea, as the article made quite plain, was to have the combined EADS-BAE corporate headquarters for defence (in English it is spelled with a 'c,' by the way, unless you are American) located in the U.K., not Germany's Bundesministerium der Verteidigung, nor France's ministère de la Défense. These latter two are ministries that are responsible for forging the defence policy of both nations and were one or either of them to move to the U.K. it would be strange indeed.

You are quite right to point out that the British government would not be pleased if the UK Ministry of Defence moved to Berlin or Paris (I am supposing here that this is what you meant by your sloppily-paraphrased 'defense HQ'), but that is not what the EADS-BAE tieup would have entailed, nor what the article was implying. If the EADS-BAE corporate headquarters for defence had moved to the U.K., what would that have meant? Would it have compelled the French or German ministries to recommend purchasing from that corporation? Of course not. They could have gone to Thales, Rheinmetall AG, or - why not? - a non-European company for whatever they might need, much as the Indian government may purchase howitzers from BAE, or the Taiwanese government AEGIS tracking devices from an American firm.

If you are unable to distinguish between consolidations in the private and public sector then I suggest you take your comments to another forum. I also hope that, in future, you avoid tackling four subjects (the politics of The Economist, defence at state level, arms manufacturers, and the state of the German economy are surely separate topics, not so?) in a comment that barely lasts nine (not very informative) lines. Your inarticulate patriotism and unsubstantiated opinions do not qualify as intelligent commentary.

I knew what you meant and was surprised that you wrote it, because elsewhere you concur that there is no "Europe" in the national sense of the USA, the latter being a nation that can therefore build conglomerates for its national economic and military interests.

Europe lacks a nation large enough to build "Large Euro defence company", it being an aggregate of smaller conflicting nations as you mentioned, and which no amount of social and economic engineering by Brussels is going to overcome. Meanwhile its efforts to do so bankrupt the entire continent.

Some contributers here, presumably continental Europeans, are alarmingly fast and loose with this this empty word "Europe", whether discussig economics or the military.

Always amusing to see some Americans claiming to be paying good money to give Europe "free protection". Protecting us against whom: Iran? Israel? North Korea? Cuba? The reason America has military bases and missile sites all around the world (including in Europe) is as a deterent against any attack on America -- by Iran, Cuba, etc.

I agree. They are using Europe's security as an excuse for their financially irresponsible military spending and vast military complex. But the truth is: Europe is meanwhile a mere hub for geostrategic power projection to the middle east, but not a zone that has an immediate threat that it cannot handle itself. So it is to a large degree self-interest, with some mutual benefits.

What the defense industry in the US probably is not interested in: if you push Europe towards a 100% self-reliance, they will align their defense policies finally and spend their combined 320 bn less on overpriced American hardware and more money on self-developed capabilities, thereby also creating a challenge to US contractors in the defense equipment markets worldwide. Europeans did challenge their large US rival in civil aviation, why not elsewhere.

There is an interesting US poll about that topic. The views in the comment section are pretty interesting.

American protection isn't free, but it's very cheap for Europe and perhaps a major component in the 6-decades of peace that Europe has enjoyed since the calamitous first half of the 20th century. I'd like to hear your interpretation of were the last 6-decades of peace (compared to the historical norm) within Europe's core came from.

Umm, NATO? Doesnt the US spend more there than any other country?
And given that US defense spending will be declining over the next two years, doesn't it make sense that US prime contractors will be more aggressive looking for NATO-related deals? EADS' standalone defense business (about E2bn not including JV's w Typhoon and missles) appears too small to compete with that. Seems to me Germany is sentencing the business to a slow decline - a microcosm of the way they're treating the rest of Europe.

You only get 3 decades accounted, because at least 50% was self-interest.
We get the 6 decades peace attributed.
The Nobel Prize committee said so.http://www.bbc.co.uk/news/world-europe-19921072
We'll send a few bottles of champaign over to your imperialist power projection club table, though, don't worry.
Cheers!

Again, the Germans are screwing things up, just like in the Eurozone. They'll be the first to talk about deeper integration and the need to all work together, but when push comes to shove, they'll just look selfishly at their own, narrow interests. Thank you Mrs.Merkel for truly doing everything you can to make Germany look as bad as possible.

Don't be hard on Swatchland. Besides legally stealing, which still has required some intellectual skills, they practically showed the world how you do not need huge armies and expensive defense systems to avoid war and invasion.

And regardless what the Swiss like to boast about their perfect representative democracy, EU law has heavily impacted on their normative framework. Soon they will have to abide to some obscure EU law regulating the size and texture of confettis to throw, on account of safety and possibly environmental grounds. You must have some sympathy for the formerly-isolated-come-global.

Don't worry, the Swiss are nice people who are polite, clean, precise, surprisingly polyglot and are world leaders in individual happiness so they can't be that wrong and have my deepest respect. Yet, the most significant of all traits is that they really stick to rules. Where it gets problematic is if they stick to wrong rules such as the Bankgeheimnis (bank account secrecy). Criticize that and you got a werewulf that you need to fix somehow before you get bitten. I am still puzzled how the banking industry lobbied the whole thing into a matter of national interest over decades (and how long the rest of the world acccepted it). But apart from that I actually do admire the advantage of their representative democracy and understand why they are so fond of it. I clearly remember when they had a referendum at the beginning of the 2000s and voted to keep nuclear energy. A thing I would have wished for in Germany. Actually some elements of Swiss democracy like referendums could be a very good example of how the EU should do it in order to keep EU citizens connected to what's happening at the top and it would increase legitimacy. It makes people stop complaining when they had a true say on topics that are affecting their daily lives, even if they "lose" their referendum. Much better than just a cross in a circle every 4 to 5 years.

As usual, the Brits don't care too much about the political national interest if there is an economical advantage. The germans only care about their short term political interest and their partners can drop dead. The French like internationalisation, provided they have a majority. And the common long term european interest is forgotten...

Hmmm. The article says the Germans had been hoping to hide behind the French to scuttle the deal. I wonder if the exact reverse did not occur. The French Socialist Govt was taken aback by the chance announcement - not a way to treat a touchy shareholder - and it is no news that the EADS CEO wants his public shareholders out or declawed, not something that resonates well with the ruling left. Add to it the disproportionate bonus and weight given BAE, and the flurry of sops to the US customer, and what you witnessed was not a major Euro defense giant being born, but a major chunk of Euro defense industry being pulled out like a bad tooth and anchored to extra-Euro interests.

I would wager Hollande was even more cool and relaxed than usual when he got Merkel's "nein" on the phone.

Maybe the so-called "long term European interest" is so easily forgotten just because it exists no more than does Europe itself.

For all their denials, the Germans cannot conceive of continental Europe - GB is simply beyond their consideration - but as their dominion.

The current imbalanced European economy is the result of: a. the irresponsible tactics of Germany in 2003, when Schröder pleaded the cause, and won it, of a weakened stability pact in their own sole interest (creating the conditions of today’s debt crisis); b. the subsequent German development on an export-based economic model at the expense of a debt-driven southern Europe. Now they can blackmail their "partners" and undermine projects including any state that could challenge their continental policy.

What the Kaiserin Angela the first is fancying is a Europe that, thanks to the job-market reforms she is bullying her "partners" into implementing, would ultimately become a Chinese like factory at the disposal of the German industry.

I am glad that the deal broke through, it would be a shame to see yet another great British company being taken over by a foreign enterprise. All that would happen is EADS with their majority share/influence would close British operations and move jobs from the UK to the continent. As for those who make the "running to the Americans" jab - Maybe if other European countries were to actually pull their own weight in NATO operation such as Afghanistan then BAE would have more of a market to sell to in Europe than the States.

No I am simply pointing out that European NATO members who aren't pulling their weight is contributing towards a declining defense market. Therefore BAE is depending more and more on the States as a percentage of market share.

EADS employs 10's of thousands of people in the UK to make wings for Airbus. It is more likely that these jobs will go now with the merger collapse. The merger was going to protect UK jobs not lose them.

My point was that Airbus is a French/German operation and carries the risks you previously entailed (those jobs move to France/Germany). If however it was 40% owned by a UK company then it is more likely that this would not happen. This is why jobs are protected by merger, airbus jobs are protected.

1. Thanks for sharing your take on what US foreign policy should be; unfortunately for you, I’m not expecting anything you said about “next times” to come through anytime soon. That the US sticks around Europe has nothing to do with selflessness or altruism, and it depends on reasons that have probably little to do with ethnic cleansing or slaughter of innocent civilians, despite the humanitarian narrative and land-of-the-free crap. If US foreign policy was true to its humanitarian rhetoric, you would have been meddling for the last two decades in around 30 countries of various sizes worldwide, from tiny places like the Comorres Islands to sizable Darfur to massive Russia. Truth is, the US goes where it chooses to go based on interests, military feasibility (at reasonable costs), and domestic acceptability. So, next times the Balkans blow up, the US will go about it as per a script you had not role in redacting.
2. I hope you are not suggesting that Milosevic would have taken over Europe, if let alone. Or that Syria would. Or Belarus! To his credit, Qaddafi managed to bring down a plane.
3. We are discussing about contributions to NATO (which are inevitably budgetary in nature) and the opportunity costs of increasing and decreasing defense spending. Italy alone could have bombed to the ground Belgrade, let alone France, the UK or Germany. If the EU or NATO didn’t do it until they did, it has nothing to do with defense expenditures, budget limits and 2%s, nor with the presence/absence of US military, but it comes down to policy and structure. Put simply, EU had no experience in “bombing countries into democracy and human rights”, the US had plenty, although selectively used in the second half of the 20th century. Many in Europe would still tell you that bombing Belgrade was a violation of international law. But of course, the US have a special relationship with the international legal framework they contributed to create, and moreover in your eagerness to attack always the EU in these post to deny your ancestors’ origins and look more American than a native Cherokee, you get to lose focus on the real subject and start talking gibberish, when it’s not selective lies.
4. Sarkozy is a dick. If he still managed to fool you into the Libyan skirmish it goes, intellectually, to your disadvantage. Of course, I don’t agree with this theory, and the US had probably good reasons to provide the assistance they provided and supporting the resolution at the Security Council. Too bad you were not there to block your government.
5. Europeans do not depend on Libyan oil, or we would have been started using bicycles already. Europe depends (and too much) on Russia’s gas and global oil markets.
6. Syrian’s neighbors are not Italy or Germany, but, most notably, Israel. It’s a country you and your US conservative friends should be familiar with. If it comes to a surprise, I can send you a wikilink, or you can simply Google “Israel”; bottom line, it has been a central element to US foreign policy in the Middle East for far too long.
7. The main threat in present-day Europe is internal, namely Muslim extremism and the occasional bomb. C’mon, I’m pulling your leg. The main threat in present-day Europe is internal, for real now: it’s called transnational organized crime, and kills thousands of people per year. Professional, well-paid and effective police forces is where we should invest, not useless armies to secure immaginary roads to energetic security that never come true.

So you advocate some kind of EURCON gendarmerie gestapo militia to be used against European citizens, and particularly against anti-Brussels dissenters, using Muslims and international criminals as an excuse?

Oh don't worry, since you like it better when your police watch a bunch of youth smashing entire neighbourhoods, I'm sure your country will be able to negotiate an opt-out. You must be familiar with term, by now.

"Europe would still tell you that bombing Belgrade was a violation of international law."

Yes the same Europe that was indifferent and did nothing while men, women & children were slaughtered right under their noses in mass graves in Sebrenica and countless other mass graves on European soil.

"Yes the same Europe that was indifferent and did nothing while men, women & children were slaughtered right under their noses in mass graves in Sebrenica and countless other mass graves on European soil."

Leaving aside that if you were so pressed with human rights maybe Baker shouldn't have said "We got no dog in this fight", and you could have bypassed third countries as you often have in the past, please now, for the sake of consistency, bomb and / or invade and / or topple the governments in the following countries:

So let me repeat once again, please spare us the moral preening about international law when Europe did nothing while men, women & children were slaughtered right under their noses in mass graves on European soil.

Would like to add Mars. Its red surface is proof that it is governed by hordes of malicious scapegoating communists. The rover's true mission is not find water but WMDs. We all look forward to the carpet bombing, once we get confirmation.

So let me repeat once again, please spare us the moral preening about international law when Europe did nothing while men, women & children were slaughtered right under their noses in mass graves on European soil"

Ah, I see, your struggle for human rights stops at white skin. Sorry, I forgot you came from a federation that includes the state of Mississippi.

Of course I know the map of Europe, smartcelticass... BTW, technically speaking, Chechnya is in Europe (not to be confused with the EU). Why you didn't move in to save caucasian brothers?